AirAsia close to major new Airbus deal

NEW YORK: AirAsia is putting finishing touches to a deal to buy up to 100 Airbus jets, ending a flirtation with Canada’s Bombardier and putting Asia’s largest budget carrier on course for regional expansion, sources familiar with the matter said on Friday.

The deal for A320-family jets, potentially worth about $9 billion, is designed to fuel the growth of what is fast becoming a cluster of related airlines under Malaysian entrepreneur Tony Fernandes, who placed a record order for 200 Airbuses last year.

Demand from Asian low-cost carriers is helping to drive production at Europe’s Airbus and U.S. rival Boeing to record levels, shielding aerospace workers from recession.

Talks are at the final stage but the Airbus deal will not formally be ready in time to be announced at next week’s Berlin Airshow, the sources said, asking not to be identified.

AirAsia last year picked a revamped fuel-saving model of A320 that will reach the market from 2015. Its development and Boeing’s response, an upgraded 737, have dramatically increased competition in the $100 billion global jet market this year.

AirAsia says it still needs more of the existing generation of A320 to support ambitious short-term plans, which include expansion in the Philippines, Indonesia and Japan.

Negotiations between Airbus and AirAsia for billions of dollars of new purchases, initially for 50 firm aircraft orders and 50 options, were first reported by Reuters in May.

The deal ends speculation over talks between AirAsia and Canada’s Bombardier, whose chairman intervened personally earlier this year to try to persuade Fernandes to pick its CSeries jet, a new challenger to Airbus and Boeing.

Bombardier’s bid to break the exclusive ties between Airbus and one of its largest customers became public when a Reuters journalist spotted the discussions at a Formula 1 racetrack on the eve of July’s Farnborough Airshow.

The sources said AirAsia would not opt for a densely packed 160-seat version of the plane being offered by Bombardier.

“AirAsia is so close to Airbus that I think it would virtually give planes to AirAsia to block anything Bombardier offered,” said U.S. aerospace analyst Scott Hamilton.

AirAsia’s latest move could also sharpen competition with Indonesia’s Lion Air, another big-spending low-cost carrier that has emerged as one of Boeing’s biggest customers.

AirAsia, with an operating fleet of 116 aircraft, has ordered a total of 375 Airbus jets as part of dramatic plans for expansion that now include the acquisition of Indonesia’s Batavia Air. It has said it will bring forward deliveries as rising demand helps it offset high fuel costs.

“The region that AirAsia serves has a population of 600 million people – more than the U.S. or Europe – and the only way to get around a lot of those areas is by air,” Hamilton said.

Not all analysts are convinced by AirAsia’s expansion. Some local bankers say profits could be hampered by pressure from potential losses at start-up units in Philippines and Japan. Its shares have fallen 7 percent in the past 3 months.

AirAsia made a net operating profit of 130.94 million ringgit ($42 million), excluding one-off items, in the second quarter, down slightly from the same quarter last year.

Net profit was boosted by a one-off gain of 1.16 billion ringgit following a share sale at its Thai unit. – Reuters